Humanigen Inc (HGENQ)

[PITrader87]

I believe, if I'm understanding the wording on the most recent filings correctly, that the 19.4% that he now owns considers his stock options that are exercisable in the next 60 days.

The drop below 20% is interesting as it is happening right before we are expecting revenue in the event of a EUA.. once you drop below the 20% threshold the accounting method /tax implications of your investment changes.

If you are 20-50% owner in a company you would use the equity method:

Under the equity method, if you own 40% of a company, and the company produces net income of $5 million during the next year, you would take 40% of that amount, or $2 million, which you would add to your listed value, and record as income.

If you own <20% of the company you would use the cost method:

Under the cost method, the stock purchased is recorded on a balance sheet as a non-current asset at the historical purchase price, and is not modified unless shares are sold, or additional shares are purchased. Any dividends received are recorded as income, and can be taxed as such.

For example, if your company buys a 5% stake in another company for $1 million, that is how the shares are valued on your balance sheet -- regardless of their current price. If your investment pays $10,000 in quarterly dividends, that amount is added to your company's income.

I believe the reason for the sale could be for tax purposes.. because once the company produces revenue, he would be taxed as a percentage of the companies net income. Where as before he was taking advantage of writing off the companies net loses. Now that he is under 20% owner he can use the cost method, and would not be taxed unless he sold shares or received a dividend.


https://www.fool.com/knowledge-center/accounting-for-investments-cost-or-equity-method.aspx